“There is timing in the whole life of the warrior, in his thriving and declining, in his harmony and discord. Similarly, there is timing in the Way of the merchant, in the rise and fall of capital. All things entail rising and falling timing. You must be able to discern this. In strategy, there are various timing considerations. From the outset you must know the applicable timing and the inapplicable timing, and from among the large and small things and the fast and slow timings find the relevant timing, first seeing the distance timing and the background timing. This is the main thing in strategy. It is especially important to know the background timing, otherwise your strategy will become uncertain.” ~ Miyamoto Musashi
Q1 2022 hedge fund letters, conferences and more
In this week’s Dirty Dozen [CHART PACK] we look at more conflicting data, bear market analogs, recession indicators, Fed narrative pendulum and inflation expectations, dislocations in the mortgage market, and a budding setup in precious metals, plus more…
- @QuantifiablEdgs on the “reverse” Zweig Breadth Thrust last week: “There have only been 10 instances dating back to 1928, and the current instance is the 1st one since 1943… On average the market was down 2.5% five days later, down 4.3% ten days later, down 7.1% one month later, down 7.3% three months later, and down 7.7% six months later. I will not put a whole lot of faith in a signal that has not triggered in nearly 80 years. But the fact that we have seen such an extreme breadth collapse the last few days does seem notable.
- Just in case you’re not bearish, here’s something from @michaelbatnick to confirm your bullish bias:
“The S&P 500 fell > 1% for each of the last three days. The last time it hit four in a row was December 2018.
“The other times this happened, with the exception of 2008, was at or near bottoms. Past performance etc etc.”
- Here are the “ten most recent highly-correlated bear markets” via SentimenTrader.
- Stifel published an excellent chart pack the other week (link here, h/t @tom_morganKCP)
- @ukarlewitz shared this chart and study into the U of M consumer sentiment and SPX forward returns.
- CME’s FedWatch Tool shows the market is giving roughly 28% odds of a 75bps hike this week.
- Median forecasted inflation and UofM inflation expectations jumping to new highs mean we’re still not at peak Fed hawkishness within the swing of the Narrative Pendulum.
- Here’s a great breakdown of which components are driving the CPI numbers via Prometheus Research’s substack, which I recommend signing up for.
- I highly suggest you read this from the mortgage market veteran, Louis Barnes (link here)… “During the last forty-four years, my days have begun and ended with the mortgage market. Four painful moments stand out. Today makes five.”
- It’s still too early to call it but we could have a major bear trap in silver on the monthly chart. I need to see more from the bulls but the tapes in precious metals continue to shape up and the macro is getting close to turning from a headwind to tailwind.
- Positioning and sentiment in both gold and silver have been completely washed out and are supportive of a durable base. Silver is also coming off of deeply oversold levels (see MA spread charts in bottom right) so reversion is working in its favor.
- Endeavor Silver Corp (EXK) is a miner we’ve owned and traded in the past. Below is their monthly chart showing the stock reversed off a significant level last month. Not a bad point to begin building a starter position and wait for bullish confirmation before adding size.
Article by Alex Barrow, Macro-Ops.
